Investment Banker
Investment Banker
It’s About You Are you a high-energy individual who knows how to keep calm under pressure? Do you enjoy learning about how companies are performing and changing? If you are looking to reap the financial rewards that come with making high-risk, powerful decisions, then consider the world of Investment Banking.
What is Investment Banking? Investment banking refers to the services provided by financial institutions, such as investment dealers, to help firms and governments manage high level financial issues such as: raising capital to fund their operations (e.g. through stock or bond issues), assisting them in merging with or acquiring other organizations (i.e. M&A activity), selling non-strategic business units and managing risk through a variety of strategies.
What is the role of an Investment Banker? At the heart of it, Investment Bankers are the professionals that work with organizations and governments to identify market opportunities, negotiate and manage high level financial issues such as those described above: raising of funds for operations, assistance with M&A activity, divestiture of non-strategic assets and risk management. This job requires strong competency in technical financial analysis and highly finessed relationship management skills as Investment Bankers must do a lot of networking to make introductions for organizations as well as coordinate how the ‘deal’ is going to happen. Investment Bankers typically interact with the senior officers (e.g. Chief Executive Officers, Chief Financial Officers) of the organizations they are dealing with, be it their client firms, potential targets of acquisition and/or investors for private placements and public offerings. As a result, Investment Bankers need to be polished, professional and ‘ready’ at an early stage in their career. Investment Banking requires hard work and holds many high risks, but it can also yield high rewards. Typically, Investment Bankers work as part of a team with a variety of people including other Investment Bankers, research/financial analysts, bond/equity traders and salespersons, lawyers, accountants and tax specialists in order to understand and manage the many different aspects of an investment banking transaction. There are two primary types of investment banking firms – full-service investment dealers and firms that play in specialist niches. Full-service investment banks are the most active in underwriting and trading. Niche firms specialize in regional markets or specific advisory services (e.g. derivative product structuring, venture capital). Essentially, Investment Bankers are responsible for researching and identifying corporate investment opportunities and negotiating and structuring merger and acquisition and other revenue generating deals between organizations. Ultimately, their goal is to generate revenue for their firm and their clients.
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
1
Investment Banker
Areas of Focus Investment Bankers may perform a number of specific functions: ! !
!
Sales (or Origination) – identify opportunities where clients may require the support of an Investment Bank Underwriting – help organizations obtain new sources of funding. For example, work on public offerings (i.e. the release of shares in the company to the public for trading), private placements and corporate lending. Part of the underwriter’s role in helping firms issue new securities includes writing prospectuses – reports detailing information about the firm, its corporate governance, its financial structure, the new securities being offered, the purpose of the new funds, and other material information. Mergers & Acquisitions – advise on opportunities for mergers and acquisitions, based on financial analysis of potential future value of the organizations involved, and help structure the agreements between the companies
Investment Bankers typically start in analyst positions where they work to develop background research on clients, industries and market trends to support the work of Investment Bankers. As individuals move into higher levels, the focus shifts to business development – acquiring new clients, identifying new opportunities for existing clients and closing deals. As people progress in the role, their decision power, risk and rewards increase significantly. Investment Bankers tend to be paid more, on average, than other roles in the sector. Yet with this compensation comes large amounts of responsibility and time spent servicing the needs of clients. This can be very exciting and lucrative, but takes hard work.
Main Duties Main duties and related activities of Investment Bankers commonly include: Business development Investment Bankers are responsible for identifying potential new clients as well as new business opportunities with existing clients. Key Activities: !
Identify new business opportunities and prepare plans to approach clients (‘the pitch’)
!
Network with potential clients in order to explain firm’s services and evaluate potential opportunity
!
Manage the end-to-end sales cycle with clients from initial point of contact through to signing contracts for legal closing(s)
!
Create long-term relationships for future business transactions
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
2
Investment Banker Research investment banking opportunities Investment Bankers typically draw on the research conducted by analysts and augment this with their own research in order to thoroughly understand market conditions, their clients and industry trends. Key Activities: !
Keep up-to-date with market developments, new investment products and all other areas that can affect the markets (e.g. movements in the economies of relevant countries)
!
Monitor financial and industry-related news using specialist media sources
!
Research and analyze financial information relating to specific companies and/or industries (e.g. corporate financial statements, earnings and cash flow trends)
!
Prepare models of financial projections (e.g. earnings and cash flow projections, impact of M&A opportunity on company financials)
Provide advice on, negotiate and structure deals Investment bankers are responsible for working with teams to prepare recommendations on transactions and then negotiating and structuring the deals. Key Activities: !
Maintain up-to-date understanding of capital markets, industry, political and economic trends in order to advise clients on factors impacting investments or deals
!
Examine and analyze financial and investment information in order to develop recommendations for funding and/or M&A options (e.g. type of securities issue, timing of issue, M&A opportunities, divestitures)
!
Utilize quantitative modelling to determine value of organizations, future cash flows and sensitivities associated with these outputs/forecasts
!
Coordinate investment teams (e.g. Investment Bankers, researchers, accountants, lawyers, administrative staff) and company management to structure and negotiate the terms of deals, ensuring client’s best interest
!
Develop and present recommendations on investment opportunities, deal terms and structure based on investment research findings (e.g. present to executive teams of the firms involved in the transaction, underwriting team members, potential investors during ‘road shows’ to solicit interest)
!
Conduct regular meetings with the management of companies to discuss objectives and terms of deals
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
3
Investment Banker
Work Context, Knowledge, Skill Requirements and Applicable Experience Work context The world of investment banking is very fast-paced, high pressure, and dynamic. Investment Bankers work with a variety of people including analysts, senior executives (e.g. Chief Executive Officers/ Chief Financial Officers), industry experts and other Investment Bankers. Long work hours are common and almost guaranteed, especially for recent graduates. With that in mind, it is important to note that new graduates in this field can expect to be earning some of the highest salaries compared to graduates who go in to other financial services roles. Travel is also common among Investment Bankers as part of their role is to network with potential clients, investors, M&A targets and others involved in deals. Financial hubs such as New York, Tokyo, London, and Singapore are top on the list for places to travel.
Knowledge Investment Bankers require specific knowledge of: !
Financial markets (e.g. capital, derivative, commodity and foreign exchange markets) – both domestic and international, how they function and their performance trends
!
Broad spectrum of investment and financial products and services (e.g. equities, fixed income, asset-backed financing, derivatives, foreign exchange)
!
Corporate finance (e.g. optimizing options for funding company operations); financial statements
!
Current affairs, such as recent M&A activity, both domestic and international trends
!
Macro-economics – economic factors impacting financial markets, industry sectors and companies within those sectors (e.g. impact of rising interest rates on bond prices, impact of falling oil prices on oil and gas industry)
!
Detailed understanding of regulatory rules and regulations governing investment and financial transactions (e.g. rules relating to insider information and confidentiality (‘Chinese Wall’), prospectus filing requirements, disclosure requirements, etc.)
Technical skills Investment Bankers require specific technical competencies: !
Strong analytical ability – e.g. for analyses of financial market trends, including technical charts, financial statements and cash flow projections; for planning (evaluation of market conditions) and strategy (assessing/rating investment recommendations)
!
Quantitative skills to be able to analyze technical outputs from various models, financial data from organizations and statistical data on the marketplace
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
4
Investment Banker !
Advanced computing skills in order to navigate through data repositories and the internet, create sophisticated PowerPoint presentations for clients, and build quantitative models, graphs, and formulas to assess data
Soft skills Investment Bankers require specific soft skill competencies: !
Strong interpersonal skills in order to build and sustain long-term relationships with clients, potential clients, investors and industry experts through personal and professional networks
!
Ability to work effectively in a team and share information to develop recommendations, structure deals and produce reports for management and clients
!
Self-confidence to work in a fast paced environment where significant quality output is expected
!
Excellent business acumen in order to evaluate the business value and opportunities of potential investments and financial transactions
!
Ability to synthesize and present research-based information to management, clients and investors in user-appropriate and friendly formats
!
Excellent project management skills, with the ability to multi-task and work on concurrent projects
!
Extremely strong personal integrity to maintain confidentiality about current and previous client engagements. Information leaks can be detrimental to the deals underway, the firms involved in the transactions and the Investment Banker personally. Reputations can be at risk and regulatory sanctions/penalties may result.
Applicable Experience There are a number of related experiences that are transferable to the Investment Banker role. People with the following backgrounds may do well as Investment Bankers: !
strong understanding of financial markets and experience in analysis and research and/or investment trading
!
legal expertise – lawyers with an interest in financial markets may also bring relevant experience in terms of negotiating with clients, strong research skills, analytical abilities and understanding of regulatory processes and requirements
!
strong analytical and quantitative skills (e.g. engineers, finance officers)
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
5
Investment Banker
Education, Certifications, Designations and/or Licenses Entry Level Positions Entry level positions typically require: " Undergraduate university degree In the fields of: !
Economics
!
Finance
!
Mathematics
!
Science
!
Law
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
6
Investment Banker Senior Level Positions Senior positions may require: " Graduate degree In the fields of: !
Business Commerce
!
Economics
!
Law
Additional Training Additional certifications and/or training may include: !
Canadian Securities Course (CSC)
!
Chartered Financial Analyst (CFA)
!
Canadian accounting designations (Chartered Accountant (CA), Certified General Accountant (CGA), Certified Management Accountant (CMA))
!
Law degree
!
FINRA Series 63 & Series 7 license for investment bankers working in banks with US operations
Associations may include: !
CFA Institute
!
Investment Bankers Association (IBA)
!
Canada's Venture Capital & Private Equity Association (CVCA)
!
Law Society of Upper Canada
Representative Job Titles Depending on the organization you work for, Investment Bankers may hold various job titles: !
Corporate Banker
!
Relationship Manager – Corporate Banking
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
7
Investment Banker
Career Pathways Moving into the role College graduates typically start in analyst positions within Investment Banking. To succeed in these positions you need to be extremely dedicated, have good ability to work with spreadsheets and excellent analytical skills. Students should consider internships and contract work to gain experience. Alternative entry points into Investment Banking can be through roles such as: actuaries, accountants, risk managers, financial planners/wealth managers. In these roles, you would develop necessary related skills and knowledge and understanding about financial organizations and investment management. Most Investment Banker jobs are not posted online due to the heavy competition for these roles. Instead, most positions are found through campus recruiting events, and networking and connecting with industry professionals. Advancement in this role tends to be related to one’s personal commitment and sales results. Although there are possibilities for new graduates to rotate around various functions and departments, moving up the career ladder is usually very structured.
Progression beyond the role To move into more senior Investment Banker roles you need to demonstrate success in new business generation and expertise in analyzing and interpreting information and implications for investment decisions. You must be able to demonstrate sophisticated judgment, strong understanding of client motivation and leadership potential. Investment Bankers may enjoy a long career with increased responsibility by working in more specialized markets/industries or with more complex deals. Alternative paths may include: !
Progressing into management, supervising others and/or taking on responsibility for an investment area or type of fund
!
Continuing to develop expertise in a chosen field and becoming recognized for specialist knowledge, expertise and results in the chosen field
External Factors Impacting the Role Coming out of the financial crisis, many Investment Banks have experienced one of the toughest financial periods in history. There are many large organizations that dissolved (e.g., Lehman Brothers, Bear Stearns, etc.), and those that did survive, now function under a set of financial reforms that aim to prevent similar circumstances from occurring. Technology continues to play a role in improving the knowledge, quantitative depth of analyses, and response time for Investment Bankers. Due to the increasing complexity of organizations resulting from mergers and acquisitions (especially those that are large in size or based globally), technology is required to define finance and accounting models, value the organization, and map transition of data between organizations. In some cases, these models have evolved into such complex creations that post-graduate
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
8
Investment Banker math skills are needed to create and design them. As such, technology skills become differentiators for those looking to gain entry into the field or to move-up in the organization.
Employment Trends and Outlook Employment Outlook Demand for Investment Bankers is likely to remain strong given the continuing trend towards globalization and the active merger and acquisition trends globally.
Compensation Compensation for Investment Bankers varies greatly depending on the firm they work for, seniority and performance. Investment Bankers are typically salary based with great opportunities for performance based bonuses.
Copyright © 2010 Toronto Financial Services Alliance. All rights reserved.
9
